McClendon’s American Energy Partners Eying Australian Shale

Aubrey McClendon is branching out again—this time 10,000 miles across the globe.

Oklahoma City’s American Energy Partners LP (AEP) is pursuing a US$100 million farm-in deal with Armour Energy Ltd. to develop unconventional acreage in Australia’s McArthur Basin.

Armour said on Aug 20 that it entered into a non-binding letter of intent with AEP, which McClendon founded in 2013, to further the exploration and development of Armour’s extensive oil and gas prone McArthur Basin Project.

As part of the farm-in agreement, AEP will carry 100% of Armour’s share of expenditures during a single phase of the work program, after which the parties will form a joint venture.

Additionally, AEP will pay Armour US$11 million in cash upon closing of the transaction and a further US$7 million on grant of 1 million acres, or grant and transfer of interests in pending properties.

The farm-in deal comes in the wake of reports that McClendon was eyeing Australia’s McArthur Basin as a shale hotspot for the AEP’s first venture outside of the U.S.

McClendon has continued a remarkable run of deals since leaving the company he helped found, Chesapeake Energy Corp. (CHK). That streak started through fundraising in the Utica Shale with $1.7 billion in debt and equity in October 2013 followed by $1.25 billion in February 2014.

However, earlier this year McClendon was accused by Chesapeake in a civil suit of stealing trade secrets related to the Utica. McClendon has said he will fight the suit’s “meritless” accusations. AEP also operates in the Permian Basin and the Marcellus and Woodford shales.

In Australia, AEP will develop Armour’s 21.5 million acres in Australia’s Northern Territory. The acreage is Queensland-based Armour’s dominant northern and central McArthur Basin position. The company holds one of the largest acreage positions in the McArthur Basin at 34 million acres, an area the size of England.

Armour’s executive chairman, Nick Mather, recently told delegates at Hart Energy's DUG Australia conference that the company had spent more than AU$65 million proving up its shale oil and gas resources.

“We’ve had six discoveries in our first seven wells in northern Australia,” he said.

Mather said the proposed development of a pipeline linking the Northern Territory to the eastern states gas market would bode well for future commercialization of its resources, but he emphasized that successful project development was not contingent on the pipeline going ahead.

The companies plan to execute the definitive agreements within three months, subject to up to three extensions of as much as three months each. AEP will pay US$250,000 in cash to Armour for each extension.

Robbert de Weijer, chief executive of Armour Energy, said the company is excited to be entering into a partnership with one of the world’s “most capable companies.”

“We are looking forward to seeing a substantial lift in investment and activity levels in the McArthur Basin, on terms which represent very attractive value for Armour’s shareholders,” he said. “This transaction is a major milestone in the development of our company.”

Mather added, “The American Energy team built Chesapeake Energy, now a household name in the U.S. oil and gas industry, and I fully expect American Energy to apply the same effort to the McArthur and deliver the technical outcomes for which they are renowned.”

Armour’s shares enjoyed a stellar run on the local bourse as investors welcomed the farm-in deal. The company jumped 53.2% to 7.2 cents.

Lauren Barrett can be reached at lbarrett@hartenergy.com, and Emily Moser can be reached at emoser@hartenergy.com.